Global search activity down, but US pension funds hire and fire

May 5, 2009

By STAFF WRITER

US pension funds increased their manager search activity in 2008 on the back of large losses in equity markets, while funds in the UK, Europe and Australia ditched searches to concentrate on strategy issues.

“In the US, search activity was up as plan sponsors reacted to the large losses in equity markets by reconsidering their policies and making some tactical decisions on rebalancing, as well as replacing managers who had performed exceptionally poorly,”Â Mercer noted.

Significant decreases were seen in the UK, Continental Europe and Australia, where funds opted to focus on strategy issues rather than manager changes and structures, Mercer added.

International equity (including global, EAFE and other global ex-domestic equity) remained the dominant search category, with 155 searches accounting for close to $23.5 billion in assets placed, up from $19.5 billion in 2007.

The survey showed a decline in domestic equity searches in Continental Europe and the UK, with combined figures dropping from $3.9 billion in 2007 to $1.7 billion in 2008.

Globally, search activity increased in both private equity (up from 5 to 22 in 2008) and multi-strategy hedge funds (up from 9 to 20 in 2008), while searches in real estate nearly halved from 62 in 2007 to 32 in 2008. The amount placed in real estate increased slightly, however, to $1.9 billion.

The report revealed an overall drop in non-traditional search activity, mostly due to a large fall in the number of global TAA/global macro searches in the UK.

“Plan sponsors across the globe have been busy analysing how last year’s unprecedented market conditions are shaping their investment strategies going forward,” said Andy Barber, global head of manager research at Mercer.

“We currently see a number of attractive beta opportunities, particularly in credit markets, and are encouraging clients to explore these. We expect search activity to pick up in these areas.”

In Canada, overall search activity remained roughly the same as in 2007 but the volume of searches rose for equities and alternatives and declined by two-thirds for fixed income.

According to the report, which is based on activity reported through Mercer’s global client database, Mercer advised on 676 manager searches globally in 2008.

Key statistics

UK

*189 searches conducted. Total assets placed fell from $29.2 billion to $26.1 billion
*Within the traditional area, global equities (48 searches) and UK fixed income (41 searches) saw the most activity
*The number of UK equity searches fell to 17, from 277 in 2007 and 32 in 2006
*Real estate searches fell from 25 to 7
*The number of global TAA/global macro and currency searches fell from 36 to 10
*Multi-strategy hedge funds witnessed a large pick up (from 6 to 17)

US

*The number of defined contribution (DC) searches continued to outpace defined benefit searches (151 versus 123), but was lower than the 170 DC searches in 2007
*The value of assets placed in DB searches continued to exceed the assets placed in DC searches
*International equity was the most frequently sought asset class

Australia and New Zealand

*61 searches conducted in Australia in 2008, down from 82 in 2007. Total assets placed increased from $10.1 billion to $15.2 billion
*In Australia, domestic equity searches (18, and $3.6 billion placed) and global equity searches (12, and $6.7 billion) were most common
*For New Zealand, 2008 saw a return to normal search levels (26) after a busy year in 2007 (50) driven primarily by tax changes
*Global fixed income accounted for the highest percentage of assets placed ($97 million)